Publish in Commentary - Tuesday, November 29, 2016
With Fidel Castro gone and a likely deterioration in US-Cuba relations under Donald Trump, Cuban President Raul Castro needs to focus on reforms that can boost economic growth. (Photo: US Department of Transportation).
How Raul Castro can fix the economy Fidel Castro ruined.
Fidel Castro, the man who ruined Cuba’s economy and played a key role in ruining Venezuela’s economy as well, has died.
Now it is vital that Cuba takes a radical leap forward and open its economy.
Castro ruled Cuba for 47 years (from 1959 until he handed over power to his brother Raul on a “temporary” (and later permanent) basis in 2006).
During that time he effectively ruined a once-thriving economy that was a Latin American leader (similar to what Chile is today).
In 1957, Cuba’s real income per capita (national income divided by population) was $378, or fourth in Latin America, according to Eric Baklanoff, a research professor emeritus at the University of Alabama. In 2010, Cuba ranked as the ninth-poorest country in Latin America measured by purchasing-power-parity (PPP) per capita GDP, according to a Latinvex analysis of CIA and IMF data.
“The average monthly wage is less than £15 ($20), obliging people to scrabble for decent food and basics such as soap, and there are crippling shortages of housing and transport,” the Guardian reports.
In recent years Cuba has been one of the fastest-growing wireless markets in Latin America. However, it is still the smallest wireless market in the region, according to the latest Latinvex analysis.
Although wireless phones weren’t invented when Fidel Castro came to power in 1959, an indication of telecom advancement was fixed telephony penetration. Cuba ranked third in Latin America that year, according to British historian Hugh Thomas.
Cuba was also the second country in the world after the United States to have a national broadcast network and the first country in Latin America to have television.
Another indicator was cars per 1,000 inhabitants. In 1958 they were 24 in Cuba, or six times higher than in Japan at the time, according to Jose Azel, director of the Cuba Business Roundtable at the University of Miami's Institute for Cuban and Cuban-American Studies. Thirty years later, they remained the same in Cuba, while they had jumped to 251 in Japan.
Meanwhile, Fidel Castro clearly had a hand in ruining Venezuela’s economy as well, inspiring and encouraging the late Hugo Chavez in his efforts to turn the South American country into Cuba. They succeeded. Today Venezuela also suffers from shortages of basic food and personal care products, just like the Cuba Fidel Castro left behind.
CUBA AFTER FIDEL
As it is likely that US-Cuba relations will deteriorate under the incoming administration of US president-elect Donald Trump (meaning that the US embargo will remain in place) and Cuba’s former benefactor Venezuela continues its economic freefall, Cuban President Raul Castro needs to focus on other measures that can boost economic growth.
While the US embargo has been conveniently blamed for Cuba’s poor economy for many years, the fact is that Cuba has plenty of room to create a thriving economy even without trading with the United States. Obviously close US-Cuba commercial ties would make sense, but in light of the continued US embargo, Cuba can trade with the rest of the world, including Canada, Western Europe and Latin America.
It can continue to modernize its ports and take advantage of its key location, attracting both cargo and passenger traffic.
And while Cuba would clearly benefit from US tourism (prohibited under the embargo), it can continue to promote itself in other markets as it has done so far.
SAHIC, the top Latin American hotel and tourism investment conference organizer, is holding a conference in Havana in May next year – its first ever, with plans for an annual event. SAHIC has drawn nearly 3,500 senior hospitality and tourism industry executives to its annual events, which have been held in various South American cities.
“This conference is intended to pinpoint opportunities – in a market which presents new opportunities like no other market in the world can – while sharing with hotel operators, tourism operators, investors, architects, designers, developers and vendors of products and services of the industry in general, the key to doing business in Cuba,” SAHIC says.
Trump has signaled he will roll back Cuba measures taken under outgoing president Barack Obama, but so far no details have emerged. Despite that uncertainty, Cuba can still go ahead in improving its tourism infrastructure and expanding hotel rooms.
Meanwhile, as Latinvex has stated before, Cuba’s government should implement key economic reforms that will make business easier.
They include guaranteeing respect for private and foreign investments (the current investment law allows for the state to overrule any foreign investment contract), stop the dual exchange rate system (which the government has said it plans to do this year), let foreign companies hire employees directly instead of going through the state (which typically keeps a significant portion of the salary), grant Cuban private companies the right to form partnerships with foreign investors (currently only state companies can do so), grant foreign companies that operate independently of any joint ventures with the state to have the same tax benefits as state JVs, and last, but not least, allow international arbitration of disputes (currently only Cuban state-controlled courts can handle any disputes).
Many Cuba experts have speculated that Raul wanted to implement deeper reforms than he has done since taking over in 2006, but has been held back by his brother.
Time will tell if that is true. Raul has said he will step down in 2018. Hopefully he will open up the economy before then.
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